6 Things You Need to Know About Child Education Planning
Like most Indian parents with young kids, you most likely aspire to provide your child with a top-quality education. However, being able to successfully fund a great education for your kid requires advance planning, and the determination to stick to a long-term plan resolutely. Here are five important things for you to keep in mind.
While most goods and services are inflating at 6-7% per annum, the recent inflation trends in tuition costs has been closer to 9% per annum. What costs 5 Lacs today is likely to cost 20 Lacs or so after 15 years. Make sure you plan for the correct amount, while keeping inflation in mind. Consult a professional Financial Advisor if you’re confused about how to factor inflation into your long-term savings calculations.
Education = Earning Potential
Studies have shown that the quality of education received by your child will impact her lifetime earnings by 25-50%. Over the course of one’s career, that’s a very large amount. As time goes on, it’s quite likely that the job environment will continue to become more hypercompetitive, with only the best educated students securing high quality placements. This makes it all the more important for you, as a responsible parent, to plan for your child’s education well in advance.
Student Loans = Bad Idea!
While sometimes it’s the only option, it’s not necessarily the best one. A thumb rule is that you or your child will need to repay one and a half times the loan amount over time. A debt-ridden career start could drive your child to take unwise and short term financial decisions. Although student loans do allow a full deduction of interest expenses incurred under Section 80E, the should still be looked at as a last resort.
Just as Life doesn’t come with guarantees - death doesn’t come announced; and the departure of the primary breadwinner means a grinding halt to the education savings pool being created for your child. Goal Protection involves taking enough life insurance to suffice for your Child’s education even in the event of your death. A professional Financial Advisor can guide you on how best to adequately protect your Child Education Planning goal.
Your child could get through college using loans and grants, but you will never get your prime earning years back. Neither will anyone easily extend you a loan after you stop earning. Make sure you don’t lose sight of your ow retirement, in the pursuit of creating a sufficient education fund for your child. Save for your Retirement first and your Child’s Education later.
Mutual Funds Sahi Hai!
Mutual Funds offer a variety of products and solutions that could enable you to build a large enough corpus for your child’s education. You can run a long-term SIP Investment in an aggressive mutual fund during the initial years of your planning, and de-risk the corpus systematically using STP’s (Systematic Transfer Plans) a year or two prior to the goal date. In comparison, traditional savings plans such as fixed deposits and life insurance are inflexible, and also usually do not provide high real returns. Your Mutual Fund Advisor can help you with the best solutions and funds to help build a corpus for your child’s education, in light of your unique circumstances.